August 18, 2017 / 7:43 AM / a year ago

Founders’ coup leaves a void at Infosys

MUMBAI (Reuters Breakingviews) - For Infosys, a new chief executive is not the answer. Vishal Sikka delivered outsize returns in three years at the helm of India’s second largest outsourcer by market value. No wonder that the resignation of the company’s first professional CEO amid an ugly spat with founder shareholders prompted a roughly 9 percent plunge in the share price.

Infosys Chief Executive Vishal Sikka attends a news conference in Mumbai, India, February 13, 2017. REUTERS/Danish Siddiqui

When a bad CEO quits, a company’s share price normally rallies. Not so here, hence the destruction of $3 billion-plus of market value. Infosys investors have lost a leader who delivered total returns up to 15 percentage points above rivals Tata Consultancy Services and Wipro.

Graphic: Infosys outperformed under Vishal Sikka:

The manner of his departure suggests the board is not in control. It said it regretted Sikka’s decision and was “profoundly distressed by unfounded personal attacks on members of our management” on everything from deals to pay.

Indeed, it is a founders’ coup. One, Narayana Murthy, owns less than 1 percent and has no formal position. He has been a vocal critic. Others have opposed Sikka through conventional means. Together Infosys’ founders possess barely 13 percent of the company. Most of them last year abstained from voting to keep Sikka following an increase in his compensation that was tied to performance and, therefore, aligned with shareholder interests. In April, founders forced the board into appointing a co-chairman, which confused the chain of command.

To be sure, Sikka was not perfect – and Infosys changed under his leadership. The old guard was conservative. In contrast, Sikka set a too-lofty goal to achieve revenues of $20 billion by 2020. A decision not to publish an independent investigation into a $200 million acquisition following whistleblower allegations was also less than ideal.

But Sikka’s decision leaves a void while the industry is going through a structural transformation, including a crackdown on vital worker visas to the United States. A high-calibre international professional will not want to dive in knowing the perils of pushing change. Bringing back one of the company’s founders would be a step backwards. And the bullied board offers no reassurance that it will stand up for whoever is chosen. That leaves shareholders high and dry.


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